Last week Chuck Butler and I accepted a challenge from subscriber Charles F.
“Describe life in the US 5 years into the loss of our currency reserve status. Winner, Losers, what does gov’t look like on different levels, our position in the world, let your imagination run wild. When I do this my thinking quickly turns to mush.”
Much like the movie Back to Future 2, we tried to look at life down the road when the US loses much of its status as the world reserve currency. We focused on what things would look like.
Now it’s time to sort out what separated winners from losers. The discussion continues:
DENNIS: Before moving ahead, let’s summarize. Who are normally the winners and losers when a country loses reserved currency status?
CHUCK: Good question again!
I would suspect that the Winners are those of us that:
- Diversified their investment portfolios to include precious metals, and other currencies.
- Got out of debt.
- Had a good base of cash before all this came raining down on us.
- Moved that cash, grabbing hard asset bargains that will become available, while avoiding huge inflation losses.
The Losers will be those who:
- Didn’t diversify their investment portfolios
- Don’t understand that inflation could ruin their lives, as well as their investment portfolios.
- Held debt that got called with worthless money or defaulted.
- Probably started out with a bad understanding of what it takes to “make it”.
There are also some who feel they can time the market perfectly and, when things turn on a dime, think they are smart enough to beat everyone out the door. They will get clobbered!
DENNIS: I want to address one inflation concern. Historically inflation hurt creditors and helped debtors as they are paying back their obligations in much-depreciated dollars. I’ve had readers ask about borrowing money to invest.
Chuck, that concerns me. Many of our readers are baby boomers or retired. The theory might make sense as long as you have a good job and can continue to earn money to pay the bills. If you lose that income, then loans could be foreclosed.
I know many retirees who have a government pension and think nothing about financing purchases.
Are you in the camp of believing that people should get out of debt and stay that way? Would you tell pensioners they are OK, and those trying to make do with Social Security and a 401k would get different advice?
CHUCK: Well, just because I say this, doesn’t mean it’s right for everyone, but for the most part it should be right.
I have always been someone that doesn’t like to owe anyone anything… Therefore, I WOULD be in the camp of believing that people should get out of debt.
Being out of debt allows you freedom to address things as they arise, without worry of having monthly payments hanging over your head. I’m a strong believer that people my age shouldn’t be going into debt, unless they are very sure that they will remain employed for the next 5 years. 5 years is a long time, relatively, and you really need to be sure that any new debt is covered.
As we said in part 1, all political promises cannot be kept. In times of crisis, social security and government pensions will likely be adjusted.
And finally, the more true, hard assets you own, the better off you are. Live below your means and invest your savings. When the inflation dust settles, assets can be sold and your buying power would have been preserved because the hard assets kept up with inflation. You don’t want to be forced to sell at the wrong time.
DENNIS: OK, let’s turn to the positive side. There were plenty of winners in the Great Depression, UK, and Brazil, etc. We want all of our readers to be part of that group.
I’d like to add a third category. The winners will move ahead on the net worth scale, while the losers will move down. The third group is those who manage to hold their own. Baby boomers and retirees want to protect their true buying power so they can survive, enjoy a reasonable lifestyle and perhaps pass something on to the next generation.
Assuming the dust eventually clears, like it did in the UK, how is society rearranged? Even today’s billionaires may take a hit and be deluged with taxes, but they would likely still be wealthy if they diversified.
No government I know of has ever taxed its way back to prosperity. Something has to give.
What about the middle class? How about retirees? What about the welfare class who are already being told they are entitled to free stuff because they are being treated unfairly?
CHUCK: Well, all those that believe the Gov’t checks will continue to come, will be right for a short period, but once the reserve currency status is removed from the dollar, those that live for Government checks, including social security will suffer.
The working class will hang in there, I believe, for they will continue to go to work each day, put food on the table, no matter the cost, and survive. Retirees have been dealt one financial blow after another since 2007. As long as they have properly diversified their investment portfolios, and stayed out of debt, they should be OK.
DENNIS: You recently mentioned how many more people were working from home and moving out from the high tax cities and states. Do you feel a mass migration to rural America would continue?
CHUCK: Yes, this is the new normal for workers… In 2020, people became so scared of being around other people, that they have taken the improved internet, and moved to the country. I worry that these people don’t have the slightest idea what it takes to live in rural America, but that’s their problem and not mine!
On the positive side, many will love rural America and likely a lower cost of living.
DENNIS: Let’s get as specific as we can under the circumstances. I suspect you would advise readers to stay gainfully employed as long as possible.
We talk diversification; I want to add some of my experience. We have a comfortable allocation to precious metals. When it comes to the market, we are no longer investing for stock appreciation. The market scares us and could topple at any time.
Most of our market investments are in two groups. One is income producing, dividend stocks, with the bulk in solid preferred stocks. The second is in stocks, like mining companies that pay small dividends but are a good inflation hedge. During the high inflation Carter years, mining stocks outperformed gold.
Some of our investments are offshore, also diversified.
Holding a lot of cash scares me. While we want cash to be able to jump on bargains, too much could be subject to high inflation woes. What few CDs we own are laddered, all within three months.
While the 2025-2030 Investor’s Almanac is very blurry, what are ways investors can hold their own and improve their lot?
CHUCK: I’ve not been gainfully employed for 5 years now, and my situation is stable… I wish I had been physically able to work for a few more years, but that was not possible. I advise everyone to continue to work as long as they can, that is the number one way to hold your own.
I like what you wrote about how you have diversified; proper diversification is key to holding your own, or improving. We have two homes, in desirable locations. Real estate in the right location makes sense to me. People who have mortgaged land may be forced to liquidate and there will be some real bargains.
DENNIS: Neither of us want to sound like Chicken Little, constantly warning about impending doom. We are calling what we see, feel and believe. History shows us that people, cultures and societies can positively survive in spite of stupid governments.
Despite all the challenges, I’m positive. Had the reset taken place in 2008, instead of government intervention, our country, and world would be better off today. The bigger the bubble, the more the collateral damage; however, smart, industrious people always seem to do well.
How do you feel about the future?
CHUCK: I regularly comment on the Consumer Confidence Index; the people that write the report didn’t “ask me!” Don’t be fooled by this Confidence Index, it’s really a pulse on how the stock market is doing.
The survey takers don’t ask about debt levels, rising inflation fears, what China and Russia are doing, and things that could easily bring down the Consumer Confidence. Maybe it’s better that I’m not asked, as I would point out a number of things that just scare the bejeebers out of me!
I feel, much like the UK, things will get tough because a big bubble will burst. Many senior members of congress will not run for reelection, giving the people a great opportunity. Like the UK, we will land on our feet. I just hope the young people are able to vote in true reformers and not get caught up with political hype.
DENNIS: Well, we gave Charles F. our best shot! Chuck, thanks again for your time.
CHUCK: My pleasure.
Dennis here. The 1929 crash caught many by surprise. Roosevelt unilaterally raised the price of gold, devaluing the dollar. Learn from history, stay well diversified including gold and hang on.
For more information, check out my website or follow me on FaceBook.
Until next time…
Dennis
“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken
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I am torn regarding holding debt into a coming financial collapse. If I can pay it back with debased dollars later, why would I want to pay it back now? I have the means to pay off a loan from my 401k but I thought it better to take the dollars and purchase silver and gold for the first time. I wish I could take my 401k and convert it to precious metals, but not sure if taking the tax hit now would be a mistake.
HI Tony,
I have to tell you I am not licensed or qualified to give personal, individual investment advice. With that being said, you might want to consult with your financial professional.
The reason I responded is I hold some gold stock in my IRA and I think there are now some ways to own metal inside a 401k. It might be worth checking in to.
Best regards,
Dennis Miller
Thanks Dennis. My IRA is with fidelity, they allow precious metals but only through their one selected broker/trustee (not sure of correct term, but you know what I mean). I want to physically hold any metals I purchase. “If you can’t stand in front of it and protect it, it ain’t yours.” Don’t know where I first saw that, but it sounds good to me.
Plus my debt is a loan from me. My only worry is to pay it back if I have to leave my employer because of enforced vax compliance. Worse comes to worse I take the tax hit in the unpaid balance.
My other concern is that IRA and 401k will be hijacked to appease the mob, ‘cause muh racism or some such.
We took a loan from my husband’s 401K to buy the land and pay back the loan in 3 years, so that the layaway Gastineau Oak Log home we purchased in 2010 would be paid for and delivered about the time the 401K got paid back.
I cashed out my 401k and literally paid the taxes quarterly for a year, but I sank a big part of it into silver around 17 and sold at 34 in 2009/10.
I consulted an expert about how to pay the taxes and stay out of trouble and he thought I was nuts for doing what I did with my 401K. I didn’t ask him what he thought about what I did; I asked him for tax advice. Once we got it clear that Nick and I weren’t paying for his opinion, only his expertise in tax law, he earned his $250 fee. (He thought he had a client on the hook. )
Oh, I suppose some silver sank in the pond. I hope copper sulfate doesn’t hurt silver. Or guns.
Geesh, now that I think about it, there’s a lot of stuff in that pond that needs to be raked out of there!
About holding debt:
When all 3 branches of the USG are captured, rules become somewhat fluid. I recall ‘surcharges’ from the ’70’s, but it needn’t be limited to that. I would expect ‘adjustments’ to become legal for payments if the system is threatened. Better not to be in debt.
I would add that putting some money into bitcoin would be a good idea, as a long-term investment. Silver will be more useful than Gold. Moving away from cities would be a good investment in your future.
People will be broke and broken. The articles on TBP seem to assume people have any money to start with.
Crypto, no thank you. Silver for supplies and gold if I want a big purchase – land or livestock. But I’ll give away lead for free to the right (wrong) person. From a distance.
Crypto in some form will probably be around in 10-20 years. BUT WHICH ONE? Bet wrong and you have absolutely nothing. I understand that BTC has dominated for a while, but don’t assume that will continue to hold. China is reining in all crypto for its “citizens,” while the US IRS is requiring reporting and cracking down on profits. There is a lot of reason to think BTC isn’t nearly as anonymous as its proponents claim.